Blood Runs Deep on the Income Street for Some Issues
December 12, 2013 10 pm
Blood was running fast and furious for some issues on the Income Street today. While overall it was not a massacre as Preferred Stocks on average lost only about 1/4-1/2%, MLPs were flat and REITs were off just a 1/2% some issues got totally annihilated.
As noted below the biggest losers of the day were the preferred issues of SuperTel Hospitality. The 10% $25 par cumulative issue (SPPRO) fell from $25.43 to $13.61---actually this is better than we anticipated. The 8% convertible issue (SPPRP) fell from $8.76 to $5.00. Each of these whippings was better than we anticipated as we do NOT believe that these are deals at this price given the risk---we believe that SuperTel may simply have to go to full liquidation unless they can find another 'sugar daddy' to bail them out again. Glancing over their financials and lodging numbers they are in virtual freefall. More upscale properties were supposedly going to help out and the only upscale unit they have had a 10% drop in occupancy--a disaster.
Given that SuperTel may still have overstated assets on the books (actually there is no doubt they are overstated) stay away from these preferreds until the $25 issue is nearer $5 and the $10 issue is near $2. Then it is a pure speculation.
Another big loser today on a Seeking Alpha article was Amtrust Financial Services 6.75% Preferred stock (AFSI-A) as it fell $2.55 to close at $18.47 bringing the current yield to over 9%. The article calls into question Amtrusts accounting practices. In an associated reaction shares of Maiden Holdings preferred (MH-A) fell to $23.60 for a current yield of 8.74% and their 8.25% notes (MNHA) (exchange traded debt) fell over $2.00/share to a current yield of 8.88%. The 8% notes (MNHB) ended with a current yield of 8.88% as well. These 2 insurance companies are related in ownership as well as officers and Boards. We can't make any judgement on the claims in the article as the issue is deep and we assume the writers had some accounting and legal advice before trashing the company (Amtrust) as badly as they did in the article. For now we are staying away from these issues--it could get much worse if there is any truth to the article--the downside far outweighs a couple of bucks of upside.
The shares of Maiden Holdings are investment grade.
ALERT--REIT Supertel Suspends ALL Preferred Dividends
December 11, 2013 11 pm
After the market close tonight small Lodging REIT Supertel Hospitality announced the suspension of dividends on all 3 classes of preferred stock outstanding. The company was not paying a distribution on commmon shares.
After a 1 for 8 reverse split and a failed stock offering it appears that the companies back is against the wall.
It was 2 1/2 years ago when we wrote this article on Seeking Alpha exposing the companies weak position. Since that time the shares have fallen from a split adjusted $11.28 when the article was written to a split adjusted price of $4.00 today. We believe it will be lower tomorrow.
Shareholders should demand the immediate resignation of the CEO for denying the obvious for the last 2 years and replace him with a new person. The REIT should be liquidated as there are few other options available.
There may be a opportunity to buy the cumulative preferred shares tomorrow at a huge discount---we HAVE NOT reviewed recent financials to see if there is a high liklihood of suspended dividends being paid in the future.